Earlier reports indicated that the U.S. president had decided to delay the implementation of tariffs on Canada and Mexico from March 4 to April 2, providing a temporary sense of relief to global financial markets. However, yesterday's news once again sent shockwaves through the markets.
On Thursday, Donald Trump reaffirmed his plans to impose a 25% tariff on imports from Mexico and Canada, which will take effect on March 4 without further delay, alongside an additional 10% tariff on Chinese goods. This announcement caused a sharp reversal in the U.S. dollar, which gained strong support against a basket of major currencies on the Forex market. Meanwhile, gold prices and stock indices accelerated their declines, along with cryptocurrency assets, which suffered further losses.
Are Tariffs the Only Reason for the Market's Downturn?
Unfortunately, no. In addition to the escalation of trade wars, U.S. economic data has also weighed heavily on market sentiment. The latest reports on core durable goods orders and total orders volume were mixed, failing to instill confidence in a stronger economic recovery.
Revised Q4 GDP figures confirmed a slowdown in economic growth from 3.1% to 2.3%, aligning with forecasts. However, the most concerning data came from the Core Personal Consumption Expenditures (PCE) Price Index for Q4 2024, which surged from 2.2% to 2.7%, exceeding the 2.5% forecast. The headline PCE also rose from 1.5% to 2.4%, surpassing expectations of 2.3%. While the monthly figure remained flat at 0.0%, compared to a forecasted increase of 0.25% from 0.1%, the overall inflationary trend left a negative impression on investors.
Essentially, these figures suggest that inflation is rising despite an economic slowdown, reinforcing fears of stagflation—a scenario that could be detrimental to the import-dependent U.S. economy.
Key Focus: Upcoming U.S. PCE Inflation Data
Today, market attention will turn to the annual and monthly PCE price index readings from the U.S., which are closely watched indicators of inflation. These figures are typically more relevant than quarterly data due to their freshness and immediate impact on monetary policy expectations.
Consensus forecasts suggest:
- Annual PCE Inflation is expected to decline to 2.6% from 2.8%.
- Monthly PCE Inflation is projected to increase from 0.2% to 0.3% in January.
Market Expectations
If the PCE data meets or exceeds expectations, market sentiment will likely remain negative, reinforcing trends in favor of:
- A stronger U.S. dollar
- Increased demand for U.S. Treasuries as a safe-haven asset amid concerns over a potential stagflationary downturn in the U.S. economy.
Daily Forecasts
Bitcoin (BTC/USD)
The sharp decline in Bitcoin continues amid widespread market negativity. The next downward target is $73,485, with further losses possible if PCE data signals rising U.S. inflation.
U.S. Dollar Index (#USDX)
The Dollar Index is testing key resistance at 107.35. Given overall market sentiment, the upward trend is likely to persist. A break above resistance could push USDX towards 108.40 early next week.
